The LIBOR banking scandal was over my head until this article simplified it.

How Big Banks Are Still Lying, Cheating and Ripping Us Off

Joshua Holland's interview of David Dayen:

It’s about high-level banking executives lying and manipulating the system in order to make a bigger profit, and in doing so ripping off millions of people around the world. First, what is the London Interbank Offered Rate or LIBOR?

David Dayen: The London Interbank Offered Rate is sort of the rate that banks charge amongst themselves for lending. More important than that, it’s used as a benchmark rate for pretty much all loans. We’re talking student loans, car loans, adjustable rate mortgages,...

If you have a home loan, if you have a credit card, if you have an auto loan, if you’re living in, say, Nebraska, this London bank rate affects your pocketbook.

I’ll tell you a way people were definitely affected whether it went up or down. That was in terms of local government. There are all these interest rate swap deals where local governments can lock in an interest rate at a certain level, and they do these deals with large, major banks. Banks are gaming the rate down – the locked-in rate makes them more money over time. When you’re talking about local governments you’re talking about local tax dollars. That really affects everybody. There are local governments across the country who engage in these local rate swap deals, who have been just completely ripped off,...

Also helpful, The LIBOR Scandal Explained in One Simple Infographic

It's a very long diagram, but clear.

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Robert Scheer expects the biggest crime of the century to go unpunished, excepting for a few fines.

Modern international bankers form a class of thieves the likes of which the world has never before seen. Or, indeed, imagined.

Forget Bernie Madoff and Enron’s Ken Lay—they were mere amateurs in financial crime. The current Libor interest rate scandal, involving hundreds of trillions in international derivatives trade, shows how the really big boys play. And these guys will most likely not do the time because their kind rewrites the law before committing the crime.

Libor: The Crime of the Century

Another helpful explanation of how LIBOR hits you in the pocket.

These complex machinations pitted the brains of county treasurers or school boards against the deceptive wizards of Wall Street. Municipalities typically entered into an interest rate swap because Wall Street’s fast talking salesmen showed up with incomprehensible power point slides wearing $3,000 suits and assured municipal officials it would lower their overall borrowing costs on their municipal bond issues.  A typical deal involved the municipality issuing variable rate municipal bonds and simultaneously signing a contract (interest rate swap) with a Wall Street bank that locked it into paying the bank a fixed rate while it received from the bank a floating interest rate tied to one of two indices.

When the two sets of cash flows are calculated, the side that generates the larger payments receives the difference between the sums. In many cases, continuing to this day, the municipality ended up receiving a fraction of one percent, while contractually bound to pay Wall Street firms as much as 3 to 6 percent in a fixed rate for twenty years or longer.  If the local or state governments or school boards wanted out of the deal, a multi-million dollar penalty fee could be charged...

Here's an example.

According to the June 30, 2011 auditor’s report for the City of Oakland, California, the city entered into a swap with Goldman Sachs...the city has paid Goldman roughly $32 million more than it has received and could be out another $20 million if it has to hold the swap until 2021.

Wall Street's Biggest Heist Yet? How the High Wizards of Finance Gu...

Federal Judge lets LIBOR-scandal banks off the hook. "Meanwhile, the riggers continue to rig"...

Your Retirement for a Bottle of Champagne: How Wall Street Fraudste...

... how would you like to open your wallet and hand over a wad of cash to a gang of international con artists who commit fraud as casually as they order a five-course dinner?

Well, tell it to the U.S. Department of Justice, because that’s just what’s going down as a result of the LIBOR scandal.

To recap: Bank hustlers manipulated the world’s most important set of benchmark interest rates and thereby impacted the prices of upward of $500 trillion worth of financial instruments. The LIBOR scam devastated state and municipal budgets, squeezed pension yields and ripped off bank shareholders. In a case of jaw-dropping fraud, greedy traders rigged up the benchmark so that they could cash in on bets on derivatives, while banks submitted fake numbers to make themselves look financially healthier. One Barclays official was fond of fudging numbers in exchange for champagne.

That’s right. A bottle of bubbly for a scam that screwed your grandma on her retirement savings.  Retail bank certificates of deposit, you see, are very popular with senior citizens, and they are priced based on LIBOR benchmarks. As Alexander Arapoglou and Jerri-Lynn Scofield have explained on AlterNet, that alone could cause Grandma’s income to drop by as much as 2 percent.

That's not even counting what happened to her pension -- or yours.

... a federal court judge had let several banks off the hook, dismissing claims that 16 banks targeted by lawsuits had broken federal antitrust laws by rigging LIBOR. As Matt Taibbi explained in his must-read article on the banking scandal, the federal judge bought the banks’ ridiculous blame-the-victim story that if cities and towns and other investors lost money over LIBOR rigging, it was their own fault.

... Attorney General Eric Holder recently telling Congress that the size of financial institutions has had “an inhibiting impact” on prosecutions against them. In other words, too-big-to-fail is too-big-to-jail. In a recent article, Pam Martens asked a burning question: Is the DOJ deliberately stalling on bringing charges against U.S. banks connected to LIBOR, namely JPMorgan Chase and Citigroup?

Meanwhile, the riggers continue to rig, and the regulators sit around scratching their heads. And as for you and me? That part is easy: We get fleeced. [emphasis mine]




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